• About Frank

  • Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Join 613 other followers

  • Frank Rizzi manages Bos Commercial in West Covina and has been in real estate since 1988. Since then, he has made millions for his investors over the last decade.

    With his team of experts, he has built a solid reputation as a responsive expert with in-depth market perspective of a local firm coupled with the sophisticated capabilities of a national company.

    BOS Commercial has positioned itself to handle every aspect of your commercial property
    investment whether it be purchases, management, leasing, renovations, or sale of your property.

6 Easy Ways to Reduce Repair and Maintenance Costs

It’s so easy to take appliances for granted. Sometimes it seems like they just keep running and running. Until they stop.

Any appliance repair expert will tell you that simple maintenance can add years to the life of your appliances and reduce the likelihood of having to replace them.

Plus,these simple maintenance tips can vastly reduce the likelihood of huge repair or clean-up costs when your appliances fail.

And given Murphy’s Law, they always seem to fail at the worst possible moment — like over a holiday when repair costs double.

One of the best times to perform simple appliance maintenance is when your tenants moves out, and you are preparing to re-rent your unit. Below are some simple maintenance tips that can easily be performed without any experience or special tools.

Some of them you may already do — but some may be a surprise!

Refrigerator:

1.  Your fridge is run by a compressor which sucks warm air in and generates cool air. Along with the air that is being sucked in, it also takes in dust and lint from the household. Most people forget to clean the condenser coils regularly. Years of dust and grime can clog the condenser coils and reduce the lifespan of your refrigerator. The easiest way to clean the compressor, coils and any other air intakes where dust can collect is to turn off the fridge and take a vacuum cleaner to these areas. If you do this simple act every time your rental unit turns over, it can prolong the life of your fridge by keeping the compressor running well.

2.  Check the seals on your refrigerator and freezer doors. If they’re not tight you’re losing efficiency. This burns up your compressor, shortens the lifespan of your appliance, and uses significantly more electricity. To check your seal, close the door on a thin sheet of paper. If the paper slips, your fridge is wasting energy. Replace the seal or adjust the door latch, if needed.

Washer and Dryer:

3.  Make it a point to invest the time and money to replace washer fill hoses every five years. It’s a lot cheaper to replace the hoses than the massive clean-up that happens after one of them bursts. If this has ever happened to you, you know exactly what we’re talking about!

4.  Inspect your outside dryer vent (exhaust duct) annually and clean it of any blockage. In cold climates, small animals have been known to nest in or around these events, causing damage to the vent and the dryer.

Water Heater:

5.  Under normal usage, a typical water heater will last eight to twelve years. But some landlords have water heaters that last fifteen or twenty years. One of the best ways to extend the life of your water heater is to clean or flush out your tank, between renters. This will remove any sediment build-up, helping your water heater to run more efficiently.

Drains:

6.  While a drain is not an “appliance”, clogged drains are one of the most common reasons for plumbing maintenance calls. So every time you re-rent your unit, make a point of removing your bathroom sink and tub drains to remove any hair and blockages. It’s amazing how much nasty gunk will coagulate around hair that gets caught in your drain.

This can lead to expensive plumbing bills. But with a simple — and free — cleaning job, they will work like new again.

Mortgage Interest Deduction Under Fire

As the Joint Committee on Taxation mulls a 500-plus page report on tax reform, housing industry leaders already are rallying against a possible change to the mortgage interest deduction — which no longer appears untouchable.

One outspoken opponent to changes to housing deductions is the National Association of Home Builders, which presented testimony before the Committee. NAHB called on Congress to maintain its support for vital housing tax incentives, including the Low Income Housing Tax Credit, the mortgage interest deduction and real estate tax deductions to preserve both homeownership, and affordable rental housing.

When it comes to housing and tax reform, the spotlight typically falls on the mortgage interest deduction.  Robert Dietz, an economist and assistant vice president for NAHB, set the record straight on a number of false assumptions regarding this important homeownership benefit.

“First, we frequently hear that few home owners benefit from the mortgage interest deduction because itemization is required,” he said. “In fact, most home owners will claim it. In 2009, 35 million taxpayers, or 70 percent of home owners with a mortgage, claimed the mortgage deduction in that year. Among all home owners who have ever held a mortgage, the vast majority have claimed the home mortgage deduction for years at a time.”

Critics charge that the mortgage interest deduction encourages the purchase of a larger home, but these claims ignore the role of family size. Home owners with larger families need bigger homes and will therefore have a higher mortgage interest deduction.

“The need for a larger home created the higher home loan deduction, not the other way around,” said Dietz.

He also noted that the cost of housing varies greatly across the nation, so what appears to be a large deduction for a given home in one area may reflect a modest home in a high-cost area.

Moreover, the mortgage interest and real estate tax deductions are two of the few elements in the tax code that that account for differences in cost-of-living.

“The real estate tax deduction is an important reminder that home owners pay more than $300 billion in property taxes each year. This fact is often ignored in the federal tax debates because these taxes are collected by state and local governments,” said Dietz.

Regarding the mortgage interest deduction rule for second homes, Dietz said that many mistakenly think this refers to expensive beach property, when in reality, such homes are often owned free and clear or rented, which excludes the owner from taking the mortgage interest deduction.

In practice, the second home deduction is important for many who don’t think of themselves as owning two homes. Repealing the deduction for second homes would penalize millions of home owners who move from an existing home and buy a second home in a given tax year. There would be further negative economic consequences in terms of lost home sales, home construction and local tax revenues.

A Renters’ World

Recent U.S. Census data shows that more than 40 percent of renters are “rent burdened,” or pay more than 30 percent of their household income on rent. The need for affordable rental options remains acute. The Low Income Housing Tax Credit (LIHTC) is the most effective tool for the creation of affordable rental housing. Utilizing a public-private partnership to attract investment, the program has produced and financed more than 2 million affordable rental units since its inception in 1986.

“As LIHTC properties must generally remain affordable for 30 years, they provide long-term rent stability for low-income households around the country,” Dietz said. “But the demand for affordable housing far exceeds the availability of financing through the LIHTC program. The solution is not to eliminate the most successful affordable housing program in the country, but to provide it with the resources necessary to address the shortage of affordable housing options in our cities and towns.”

The Renters’ Tax Credit

According to The Center on Budget and Policy Priorities, federal housing policies have missed the mark by focusing on increasing homeownership when low-income renters are more likely to pay a higher share of income for housing or to face homelessness.

They say that changes to the mortgage interest deduction — such as a plan to convert to a credit — could offer more support for low and middle income homeowners. Congress could direct a share of the savings from reforming deductions to address the needs of lower income renters, for instance, in the form of a federal renters’ tax credit.

According to the CBPP, a federal renters’ credit could be administered by states which partner with property owners and banks. For instance, states could issue credit “certificates” or allocate credits directly to owners who could then claim a federal tax credit based on the rent reduction. A third option would be to offer the credit to the mortgage-holder in return for lower mortgage payments.

Pay Down Mortgages Faster or Buy New Rental Properties?

If you are a landlord and real estate investor with, say, 4-5 rental properties with mortgages, and you have an extra $1,000/month you want to put to good use, should you pay down your mortgages faster or invest in another rental property? Like most questions worth asking, the answer is “It depends.”

Examine Rental Investments Existing Mortgages

How high are your interest rates, both for your existing mortgages and potential new ones? At 12%, the cost in interest will likely outweigh the return on investment (ROI) from another rental property, so in most cases it would make more sense to pay off the old mortgages and rid yourself of the expense. At 5% interest the math is more favorable, and a well-chosen new rental investment is often the more profitable use for your cash. And, of course, if the old interest rate is very high, perhaps a refinance to a much-lower one is in order, potentially with enough cash out to finance the purchase of a new free-and-clear rental investment!

Compare Sales Market Against Rental Market

How is the sales market versus the rental market? If local cap rates are high, and you can buy low and rent high (as conditions were in 2012 and remain in many markets), then use the extra cash to expand your rental portfolio. When real estate prices are high and/or dropping (as was the case from 2006-2011 in most U.S. markets), it makes far more sense to pay down your mortgages with the extra cash, rather than overspend on a new investment property.

Tax Benefits of Paying Down Loan vs. Buying New Properties

Aside from the more obvious factors above, there are also several hidden costs and benefits associated with both options. Mortgage interest is a tax-deductible expense, so the real cost is substantially offset by the reduced tax liability. For every dollar you have to pay in interest to the bank, you might be saving 40 cents in taxes on unearned profits to Uncle Sam. And using your cash on a down payment on a new property comes with its own set of tax benefits – the new property can be depreciated for paper losses, the new interest payments can be used to offset tax liability, etc.

What About Asset Protection?

If your rental properties are in a particularly litigious area, there are asset protection benefits to keeping high mortgages on the properties as well. Many lawyers earn their living by encouraging tenants to sue their landlord, but before they go through the trouble, they will often first do a cursory check to see whether the landlord has assets worth taking. The first place they will look is at the rental property itself – if it is worth $90,000 and has an $80,000 mortgage, there is nothing for the lawyer to take, as it would cost more to collect than there is equity in the property.

Factoring in Mortgage Interest Calculations & Payments

Paying down mortgages early has its advantages too. However, mortgage interest calculation is based on what’s known as “simple interest amortization,” which is anything but simple. The important thing to know is that percentage of your monthly payment that goes to principal versus interest changes from month to month, with much more interest being charged in the beginning of the loan than at the end. As the principal balance shrinks, the percentage of your monthly payment that goes towards interest also shrinks, while the portion going to principal grows. So the lower your principal balance, the faster your payments pay it down even further, and not linearly but exponentially.

Goal of Landlording is Passive Income

And to come full circle to why one might pay down their mortgages in the first place, the whole point of being a landlord is passive income, right? The sooner rental properties are paid off, the sooner the landlord starts pocketing most of the rent instead of passing it along to the bank. The annual ROI will leap upward, and remain high indefinitely. A landlord with 4-5 free-and-clear rental properties may well be able to quit their day job and exit the rat race entirely.